Other ABC News Sites

Listen live

Audio 4:01
HSBC reportedly no longer wants to bank with more than 40 diplomatic missions in London

Elysse MorganUpdated
Mon 5 Aug 2013, 1:17 PM AEST

International banking giant, HSBC, has reportedly asked more than 40 diplomatic missions in London to close their accounts as it comes under pressure from regulators to clean up its books. Last year US regulators hit the bank with the biggest fine in history for its failure to stop terrorists, drug lords and rogue regimes from using its operations to launder money.

Transcript

ELEANOR HALL: Now to reports that the international banking giant, HSBC, has asked more than 40 diplomatic missions in London to close their accounts with the bank.

It is being seen as a move by HSBC to clean up its books.

Last year US regulators hit the bank with the biggest fine in history, $2 billion, for its failure to stop terrorists, drug lords and rogue regimes from using its operations to launder money.

Finance reporter Elysse Morgan has the story.

ELYSSE MORGAN: The hundreds of diplomatic offices based in London all have to do their day-to-day banking somewhere.

But over the weekend it was reported by British media that banking giant HSBC has told around 40 of the offices, it no longer wants their business.

Papua New Guinea, the small African republic of Benin and even the Vatican are among them.

Bernard Silver the head of the UK's Consular Corps, which represents consuls in the UK, has told media it's created havoc, as the embassies not only need to pay bills, they have to bank money for visas and passports.

And the Papua New Guinea High Commission minister John Belavu called the decision a bombshell.

For banking analysts though, it's not so surprising. Regulators have been breathing down HSBC's neck since last year.

It was found by a US Senate committee to have allowed the flow of billions and billions of dollars between drug cartels and terrorists to name a few.

In July last year, chairman committee Senator Carl Levin accepted the bank's apology and its $2 billion fine.

CARL LEVIN: But it just simply is not enough. It totally falls short of what is needed to change conduct and to change culture.

You've got to have accountability for past failures. It can't just be we're sorry about 'em and we're going to change our ways.

ELYSSE MORGAN: And it's clear HSBC has taken that call for change very seriously.

Firstly, the man who should have spotted the problem as head of compliance David Bagley resigned.

DAVID BAGLEY: I recommended to the group that now is the appropriate time for me and for the bank , for someone new to serve as the head of group compliance.

ELYSSE MORGAN: And with only four months into the job and under pressure from global regulators, the new head of compliance Ruth Horgan, is making waves across the world by terminating business with diplomatic missions.

Michael Ahern from Transparency International says it sends a very clear message to countries like Papua New Guinea.

MICHAEL AHERN: That these accounts maybe being used as a conduit for corrupt payment or suspicious payments at least, and the suspicions are what they have to clear themselves from.

JOY GEARY: The classic is something for something for September 11, for the costs in getting that attack ready and executed were passed through one of the embassies, I'm fairly sure it's the Saudi Embassy, in the USA. So the funds came through there, were distributed out to the would-be perpetrators.

ELYSSE MORGAN: And it's not surprising that Papua New Guinea has been swept into such an infamous group. It consistently ranks around the bottom of Transparency International's Corruption Perception Index. In the latest report it's ranked 150 out of 170, behind Syria, the Congo and Nigeria.

The Index's author Michael Ahern has long been aware of the growing problem of corruption in PNG and the need for its beneficiaries to get the money out of the country.

MICHAEL AHERN: If so far as governmental officials unlawfully take money from public funds, they then have to find a destination for it. Australia is a favourite destination for some of these funds; I don't think we can afford to underestimate the extent of the problems.

ELYSSE MORGAN: And also according to HSBC, London may also be a destination.

MICHAEL AHERN: Well that's a fascinating, absolutely fascinating revelations that these high commissions may be under the spotlight, attracting attention from their bankers; I wonder what other bankers are prepared to take them on.